Press Release: Humphrey Hospitality Trust, Inc.
August 16, 2002
COLUMBIA, MD -- Humphrey Hospitality Trust, Inc. (NASDAQ:HUMP), a real estate investment trust, yesterday announced
its results for the second quarter ended June 30, 2002.
Funds from operations ("FFO") were $3.2 million, or $.26 per diluted share for the second quarter ended
June 30, 2002, down 23% from FFO of $4.1 million, or $.34 per diluted share, during the same quarter in 2001.
Earnings per share represented a net loss of ($.05) per diluted share, or ($555,00) for the second quarter of 2002,
compared to earnings of $.06 per diluted share, or $733,000, for the same quarter last year.
The 23% decline in FFO has been attributed primarily to a change in the Company's principal source of revenue.
With its creation of a taxable REIT subsidiary (the current lessee of the Company's hotels) at the start of 2002,
the Company terminated the revenue stream of fixed and variable rent from its former lessee, and has since assumed
control of a potentially more lucrative but somewhat volatile hotel operating business.
"While many of our properties have shown positive growth trends during this prolonged economic downturn, such
results have not allowed the reversal of an overall 2.6% decline in comparable occupancy (off 1.8 points), a 1.5%
(or $.77) decline in comparable average daily rate ("ADR"), and a 4% (or $1.42) reduction in comparable
revenue per available room ("RevPar") during the second quarter ended June 30, 2002" said Randy
Whittemore, President and CEO.
"While our operating margins have fallen 130 basis points (from 35.5% to 34.2%), primarily as a result of
the 1.5% decline in ADR during the second quarter of 2002, cost management programs including a company-wide wage
freeze in effect since last fall, and an incentive-based labor management program implemented at the start of this
year, have contributed substantially to the improved control of hotel operating costs during this challenging period.
Our asset disposition and cash retention strategies have also helped to mitigate the effects of a weak economy,
with a more than $12 million year-to-date reduction in outstanding debt, and lower interest rates on our revolving
credit facilities, contributing to net interest savings of $128,000 (including $338,000 of debt prepayment penalties)
during the quarter" added Mr. Whittemore.
The Company's early termination of an Administrative Services agreement (the "Agreement") with Humphrey
Hospitality Management ("HHM") also contributed to the decline in FFO during the second quarter of 2002.
"In exchange for the negotiated settlement of a $211,000 deferred payment to HHM, the Company will no longer
be required to pay HHM construction fees representing 9% of the Company's capital spending, and cost reimbursements
of up to $150,000 annually. While the cancellation of the Agreement will require additional staffing to facilitate
ongoing renovation and maintenance activities at the Company's hotels, this change is ultimately expected to result
in lower costs and an increased capacity for capital spending" stated Mr. Whittemore.
"The administrative services component of the Agreement, which called for monthly fees of $71,000, was also
cancelled (at no cost). The Company's recent recruitment of accounting and finance personnel represented the final
step in its strategy to operate independently as a self-administered REIT" noted Mr. Whittemore.
In addition to the factors discussed above, the net loss of $.05 per diluted share for the quarter ended June 30,
2002 also reflects a $1.2 million provision for asset impairment losses (including realized gains from hotel dispositions),
and an increase in depreciation expense ($388,000), which represents the cumulative effect of recording depreciation
on hotels reclassified from `hotel properties held for sale' to `investments in hotel properties', net of suspended
depreciation on assets reclassified to `hotel properties held for sale'.
"While it is disappointing that certain of our hotels are expected to be sold at a loss, the overall prospects
for our hotel portfolio are much better. Asset sales completed or planned for the remainder of 2002 are expected
to generate gross disposition proceeds in excess of $24 million for the year, and net gains (including previously
discussed provisions for impairment losses) of approximately $150,000 for the year" stated Mr. Whittemore.
"The impairment charges recorded to date were primarily related to hotel properties held for sale in Texas,
which, as a result of intensive new competition, have suffered a marked downturn in occupancy and ADR. With a recovery
in the Texas market expected to trail other markets over the extended future, and an immediate need to enhance
the Company's credit relationship with its key lenders, we have elected to reduce our investment exposure in Texas
through selective hotel dispositions. Through the final sale of seven hotel properties (including six hotels located
in Texas) over the past 11 months, the Company has successfully returned to a position of full compliance under
the original loan covenants of several key lenders" added Mr. Whittemore.
Humphrey Hospitality Trust, Inc. specializes in limited-service lodging. The Company owns 85 hotels in 19 mid-western
and eastern states.
Certain matters within this press release are discussed using forward-looking language as specified in the Private
Securities Litigation Reform Act of 1995, and, as such, may involve known and unknown risks, uncertainties and
other factors that may cause the actual results or performance to differ from those projected in the forward-looking
statement.
These risks are discussed in the Company's filings with the Securities and Exchange Commission.
The following table sets forth the Company's unaudited results of
operations for the three-month and six-month periods ended June 30,
2002 and 2001, respectively. This information is not presented in
accordance with accounting principles generally accepted in the United
States of America ("GAAP") in that six hotels properties identified
for sale in 2002 have not been separately reported as a component of
discontinued operations.
HUMPHREY HOSPITALITY TRUST, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
---- ---- ---- ----
Revenues
Room rentals and other
hotel services $ 19,525 931 34,711 931
Base and percentage
rents -- 7,206 -- 13,983
Other 40 42 83 87
-------- -------- -------- --------
19,565 8,179 34,794 15,001
Expenses
Hotel and property
operations 12,880 689 24,680 725
Interest 2,535 2,663 4,790 5,363
Depreciation 2,527 2,139 4,445 4,356
General and
administrative 758 684 1,380 1,128
Agreement cancellation
expense 211 -- 211 --
-------- -------- -------- --------
18,911 6,175 35,506 11,572
-------- -------- -------- --------
Earnings (loss) before
gain on disposition
of assets, provision
for impairment loss
and minority interest 654 2,004 (712) 3,429
Gains on dispositions
of assets 505 2 498 2
Provision for impairment
loss (1,658) (1,192) (2,246) (1,192)
Minority interest (56) (81) 3 (225)
-------- -------- -------- --------
Net earnings (loss) $ (555) 733 (2,457) 2,014
======== ======== ======== ========
Net earnings (loss) per
share - basic $ (0.05) 0.07 (0.22) 0.18
======== ======== ======== ========
Net earnings (loss) per
share - diluted $ (0.05) 0.06 (0.22) 0.17
======== ======== ======== ========
Reconciliation of net
earnings (loss) to FFO
Net earnings (loss) $ (555) 733 (2,457) 2,014
Depreciation 2,527 2,139 4,445 4,356
Loss on disposition of
assets (505) (2) (498) (2)
Provision for
impairment loss 1,658 1,192 2,246 1,192
Minority interest 56 81 (3) 225
-------- -------- -------- --------
FFO $ 3,181 4,143 3,733 7,785
======== ======== ======== ========
FFO per share - diluted $ 0.26 0.34 0.31 0.65
======== ======== ======== ========
Comparable 2002 Hotel Performance
The following table summarizes revenue per available room
("RevPar"), occupancy and average daily rate ("ADR") on a same store
basis (same store includes hotels open during the entire three and six
months of both periods ended June 30, 2002 and 2001):
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 Decrease 2002 2001 Decrease
------------------------- ------------------------
ADR $51.04 $51.81 (1.5%) $49.79 $50.76 (1.9%)
RevPar $34.36 $35.78 (4.0%) $30.31 $32.26 (6.0%)
Occupancy 67.3% 69.1% (2.6%) 60.9% 63.6% (4.2%)
PRO FORMA RESULTS ASSUMING TRS STRUCTURE DURING 2001:
Three months Six months
ended June 30, ended June 30,
2002 2001 2002 2001
-------- -------- -------- --------
Revenues $ 19,565 21,058 34,794 37,886
Hotel and property
operations expenses $(12,880) (13,581) (24,678) (25,767)
-------- -------- -------- --------
Contribution margin
from hotel
operations $ 6,685 7,477 10,116 12,119
======== ======== ======== ========
Contribution margin
as a percent of
revenues 34.2% 35.5% 29.1% 32.0%
======== ======== ======== ========
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Contact:
Humphrey Hospitality Trust, Inc.
Michael Schurer, 443/259-4924